Jeanette Carlsson Oxford Paperon Social Media Final12 July2010

Diploma in Advanced Strategy
University of Oxford (Saïd) Business School

An Assessment of Social Media Business
Models and Strategic Implications for
Future Implementation

July 2010

Jeanette Carlsson, New Media Leader,
Communications, IBM Global Business Services

An Assessment of Social Media Business
Models and Strategic Implications for
Future Implementation

Abstract
This paper examines the growth of social media, their Key technology, media and organizational (TMO) shifts
usage and value creation with future implications. A shaping the industry are analysed and implications
review of current social media models and relevant drawn for the future of the industry, player strategies,
academic literature, supported by interviews with lead- business models and value creation.
ing social media executives and thought leaders for
The paper concludes that scale, learning, differentia-
this paper, shows broad diversity of categories, players
tion, (open) innovation and complementary players/
and applications.
resources are critical to sustaining competitive advan-
The paper examines the main categories, business tage, and will drive sector realignment/consolidation,
models and usage by different players (social net- including across sectors (e.g. social media/mobile).
works, advertisers/brands, businesses), drawing on The key threats to current (mainly advertising-based)
early industry examples, including those that have business models come from monetization challenges
failed. and potential user backlash on data privacy issues,
which may be fatal for some.
The industry interviews and review of the scholarship
on e-business models bring out key themes in social With scale a critical competitive differentiator, the big
media business models and future directions, and pro- players will likely get bigger and the small acquired.
vide different perspectives on what constitutes value However, the industry can ultimately only accommo-
in social media. Based on these insights, the paper date a few big platform players. Winners will be those
attempts to assess what value has been created by/to who do not only build size but also respond to user
different industry constituents to date. needs for ‘global’ connectivity, by offering gateways
to other platforms, and take a broader view of value
creation than purely short-term financial metrics, as
today’s social media space, intrinsically linked with
advertising, morphs into a social web which offers
much wider value.


Table of Contents
1 List of Tables 4

2 List of Figures 4

3 List of Abbreviations 4

4 Discussion 5

4.1 Introduction 5

4.2 Research Approach 5

4.3 What is Social Networking? 6

4.4 What is Social Media? 6

4.5 Key Insights from Interviews 6

4.6 Overview of Social Media Categories 8

4.7 Social Media Business – and Revenue Models 9

4.8 Lessons From The Past 9

4.9 Key Themes from the Literature On e-Business Models and Implications for Social Media 13

4.10 What Value Has Been Created from Social Media? 20

4.11 Why are Facebook and Twitter ‘Winning’? 24

4.12 Key Industry Shifts 25

4.13 Implications For the Future Social Media Space 25

4.14 Implications for Future Player Strategies 27

4.15 What Will be The Dominant Business Models in Social Media Going Forward (3-5 years)? 28

4.16 Where Will Value Come From? 28

4.17 Conclusion 28

5 References 29

3

1 List of Tables
Table 1: Social Media Executives and Thought Leaders Interviewees............................................... 6

Table 2: Summary Industry Findings Based on Interviews Conducted .............................................. 7

Table 3: Overview of Social Media Categories and Players ............................................................... 8

Table 4: Social Media Revenue Models ........................................................................................... 10

Table 5: Comparison of Social Media Sites That Have Failed.......................................................... 12

Table 6: Customer-Value-Profit Paradigm Applied to Social Media Models ..................................... 14

Table 7: TMO Shifts Shaping the Social Media Space ..................................................................... 26

2 List of Figures
Figure 1: MIG Business Models ....................................................................................................... 15

Figure 2: YouTube Model of Co-Creation ......................................................................................... 18

Figure 3: Facebook’s Value Net ....................................................................................................... 18

Figure 4: Facebook’s Business model: Two Different Businesses ................................................... 19

Figure 5: Social Media Value Net ..................................................................................................... 20

Figure 6: Unique Visitors to The Top Social Networks...................................................................... 21

3 List of Abbreviations
Application Programming Interfaces (APIs)

Average Revenue Per User (ARPU)

Corporate Social Responsibility (CSR)

Initial Public Offering (IPO)

Intellectual Property (IP)

Instant messaging (IM)

Resource-Based View (RBV)

Return on Investment (ROI)

Technology, Market, Organisational (TMO)

User-Generated Content (UGC)

User Interface (UI)

4


4 Discussion Whilst the future of social media is undisputed, a key
question often asked is what value has been created
from social media business models to date.
4.1 Introduction
Not long ago, social media were viewed as a phase. The paper addresses this question in three parts:
Not anymore. The world is being transformed by these
new collaborative technologies, which have created a 1. What categories of social media business models
participatory society and new business models on an are in use today?
unimaginable scale.
2. What value has been created by which categories
Over the last decade, social networks have changed and models?
communications from one-to-one to many-to-many,
3. What are the key Technology, Market, and Organi-
shifting the way we consume, produce and interact
sational (TMO) shifts shaping the industry, player
with information, based on explosive migration to the
strategies and business models with implications
web. First, we had Directories, then Search, then User-
for the future?
Generated Content (UGC) and now Social Media1.
Facebook now drives more traffic to websites than
Google2, shifting the way brands approach online 4.2 Research Approach
marketing and customer communications. The paper is based on the following approach:
Facebook has attracted 500 million users worldwide  application of frameworks and models from the
in six years3. Twitter has clocked up over 100 million Diploma Course in Advanced Strategy, University
users in four4. The ‘Twitter Revolution’ fundamentally of Oxford (Said) Business School (e.g. Porter’s
changed Iran’s disputed 2009 presidential election. Five Forces; Value-Net Approach; Game Theory;
Social media have been credited with winning Barack Resource-Based View (RBV); (Open) Technology
Obama the 2008 US Presidential election and played a Innovation, TMO Framework etc);
key role in the UK 2010 General Election5.
 a review of relevant academic literature on e-busi-
Forrester predicts that the Internet population will hit ness models;
2.2 billion people by 2013, a 5-year growth rate of
~45%, and equivalent to nearly 1/3 of the world’s popu-  where no academic literature exists, a review of
lation by then6. relevant (reliable) websites;

Based on the growth of social media to date, soon  interviews with senior executives at Facebook,
everything we do on the Web will integrate with our Twitter, Vodafone, BSKYB, Boardreader, Blue State
‘social graph’ from social networking to brand/public Digital (Barack Obama’s Presidential Campaign
communications and business processes. Digital Media Agency) and industry thought
leaders, e.g. the Social Media Influence (SMI);
With mobile internet ramping faster than desktop
internet did7, growth of Smart devices (iPhone, iPad,  ad hoc discussions with social media executives
Blackberry, Android) and mobile web applications, from Starbucks, PepsiCo, Sony, Dell, Nokia, Marks
social media is also strengthening its grip on mobile. & Spencer and (formerly) Friends Reunited;
Facebook has more than 100m mobile users every
month and over half of mobile Internet time today is
 a quantitative and qualitative analysis of available
spent on social networks8. data to assess the value created by different social
media models and constituents.

5

4.3 What is Social Networking? 4.4 What is Social Media?
A social network is a social graph made up of indi- Social media is not limited to social networks. The
viduals tied to each other by commonality (friendship, industry uses the term to describe the general phenom-
common interest, likes/dislikes etc). Social networking enon of many-to-many communications on the web
sites are designed to create communities of people used by different players in different ways, including
online, building upon that commonality. to communicate and build relationships, distribute
and share content, connect with customers and pros-
Web-based social networking spaces generally offer pects, gather customer insights, sell products, provide
individuals or groups ways to create personal profiles customer service or collaborate with employees or
and share those profiles and status updates with other business partners.
members of the space. Most sites also enable users to
communicate with others in the space through Instant
Messaging (IM), chat rooms, e-mail/site mail, blogs, 4.5 Key Insights from Interviews
content sharing, discussion groups etc. Many of the themes and ideas examined in this paper
are based on interviews and discussions with the social
Social networking on the Internet is both old and new.
media executives and thought leaders from some of
Initially, people used the Internet to communicate
the world’s leading brands listed in Table 1 below.
with or send pictures or post messages to each other
in a public forum. In recent years, social networks The interviewees are representative of the broad
have become more commercial and user-friendly. spectrum of important players within the industry. See
For instance, instead of just posting messages and Table 1 for interviewee names, roles, organisations and
pictures to essentially large servers, social networks interview duration.
are now allowing users to create their own pages, and
give them tools to personalize and manipulate how the
pages look according to personal preferences.

Table 1: Social Media Executives and Thought Leaders Interviewees
Interviewee Role Organisation Interview Duration
Bernhard Warner Director Social Media Influence, 1 hour
UK
Blake Chandlee VP Sales and Commercial Director Facebook 2 hours
Bob Rapp (former) Head of User Communities Vodafone Group 1 hour
David Marutiak User Community Ambassador Vodafone Group 1 hour
Maz Nadjm Head of User Communities BSKYB 1 hour
Confidential Director Twitter 45 mins
Steve Dodd VP Business Development Effyis/ Boardreader 1.5 hours
Thomas Gensemer MD Blue State Digital 1 hour
Ad hoc discussions:
Adam Brown Director of Interactive Marketing Communications Dell Ad hoc
Alexandra Wheeler Digital Director Starbucks -
B.Bonin Bough Head of Social Media PepsiCo -
Rob Mogford Ex-CFO Friends Reunited
Ruth Speakman Head of Consumer PR & Social Media Sony Europe -

6


The interviews were based on a common, pre-defined players and business models. The interview findings
questionnaire, which sought to define the main social have been analysed against the questionnaire and
media categories and business models, industry category definitions resulting from the interviews (Table
trends, sources of value creation and key TMO shifts 3) and implications drawn. Table 2 summarises the
with implications for the future direction of the industry, main interview findings.

Table 2: Summary Industry Findings Based on Interviews Conducted

Category Vodafone Facebook SMI Boardreader BSKYB Blue State
Digital
Social Space blurring. Social media is Increasing focus Not covered Too many
Media (SM) Social rules apply general term but on relevance players doing the
Space – to each category many categories same things
Business Mainly advertising Mainly advertising Mainly Advertising but no First traffic, then Advertising main
Models (Not Vodafone). but many models, advertising. Many distinct business money. Space model but under-
Evolving fast incl. revenue players using SM models moving fast performing re
for CSR social context
Key Trends/ Measurability Performance Measurability Measurability (aim Simplicity, user Measurability
Shifts Measurement is ‘quick buck’) experience
User privacy (ref User privacy SM almost User privacy User privacy User privacy
Facebook issues) concerns perverted by ROI (player handling (some users are
focus improving) hyper-sensitive)
False positives Importance of scale SM can impact a More to SM than Users paying More interest in
problem: friends and functionality. number of areas if ads. Pure ad focus for apps they people
do not equal done well loses some value would not pay
influence for online
Key shift is Biggest shift is SM starting to SM fuses all Real-time Usability of
opening of APIs opening of APIs impact brand business areas becoming more smart phones
value prominent
SM is cluttered Need to balance Bus model change; SM integrating Balance between
with news stuff. short/ long term social context, data into business subscriber
goals models models/ content
is “free” belief
SM/ Multiple models/ Over 50% of user Not covered Another but Location, Mobile is
players but time on mobile is on important channel presence and complementary
Mobile no ‘global’ SM. FB has 100m since next data mobile web - reinforced
connectivity, mobile users/day path. Will evolve replace need online Obama
(+regionalisation of what is happening for PCs campaign.
players) today Struggling with
ad model. Smart
devices will
change things
Value Vodafone 360: Mainly ads + some Get beyond Measurable top Connections Traffic; product
Creation revenues + better payment revenues. campaign thinking line is sales and ad but tough to sales; content
customer service Everything social and ROI focus. revenue. Unclear measure proliferation; ad
via Twitter. Future will win. Developers Craft full SM what else - may revenues
source: multiple are key to FB value strategy. New not have been
conversations with creation (Figure 4) way of thinking measured. Value of
many social web
Implications More connections, Scale is key; shift to Value of SM is SM impact how Will iPad Consolidation;
potential privacy transactional models starting to impact brands deal with change attitude hybrid business
and ad-networks; brand value. customers. Need that all is free? models; bigger
backlash, some Consolidationincl. in to define what Business model role for mobile
business models mobile. value is. Value implications but can mobile
(ads) replicable. proposition of social make money?
Others not web is wider than
(content is “free”). SM.
Consolidation.
7

A key observation from (Table 2) is the high degree of indirect benefits but which cannot easily be measured
consistency of interviewee responses as regards defini- by traditional, short-term business metrics (SMI, Boar-
tions of categories, business models, industry trends, dreader). This divergence probably reflects the differ-
evolution of business models (more measurable and ences in the organisations interviewed.
transactional formats) and the industry at large (consoli-
dation). Conversely, there is an interesting dichotomy 4.6 Overview of Social Media Categories
between players increasingly expecting social media The Facebook interview stressed that “today, we talk
value to be transactionally based (Facebook) versus about social media but in reality, there are different cate-
those who argue that value in social media comes from gories”9. Table 3 summarises the main categories based
longer term connections with users, with associated on the interviews:

Table 3: Overview of Social Media Categories and Players
Category Definition Examples Goal Primary Activities Business model
1. Social Web-based social Facebook Connect/share with Profiling, status updates, connecting/ Mainly ad-
network network hi5 friends/ family sharing, commenting, brief based, some
Friendster conversations payment
revenue
2. Professional Online professional Linkedin Connect with and Build new contacts, career Free-to-use,
network network Plaxo manage professional opportunities, get back in touch payment for
contacts premium
services
3. Content Social network flickr Connect users and Create profiles, connect with friends, Advertising, e.g.
aggregator focused on content bebo (ad) content distribute/share/view photos, video, Bebo sponsored
sharing myspace music, links to other websites links (likely to
change)
4. Blogs (“web Personal home page Gawker Provide commentary Commenting Advertising
log”, incl. RSS in diary format Blogger on a subject (mainly
feeds) Xanga sponsored links)
5. Hybrid between Twitter Keep in touch with Sharing of short messages and status Mainly
Microblogging social networks and Facebook friends updates, e.g. Twitter ‘Tweets’ – text advertising
blogs Friendfeed based posts up to 140 characters e.g. Twitter
Jaiku sponsored
Alexa Tweets
Plurk
6. Social Social networks on- Facebook, Twitter, Connect with friends Connecting anywhere, anytime Various, e.g.
networks on the-go Myspace, ‘on the go’ ad-based, free-
mobile Vodafone 360, to-use
Brand apps
7. Brand Real-time Brand Coca-Cola, Brand awareness, Product ratings, message boards, Various, incl.
community engagement PepsiCo sales, real-time ‘social CRM’, photo sharing, ideas for advertising,
(online, mobile) Starbucks feedback/ customer new product development payment for
Sony Europe service, CRS etc. services, free-
Dell to-use
Kodak
Webkidz
8. Internal Internal business IBM, Collaboration, Networking, knowledge sharing, N/A
community community HP, knowledge sharing collaboration
Caterpillar
9. User- UGC, video- YouTube Content sharing (e.g. As goals Advertising
generated sharing sites, online Ning YouTube), news/story (Ning moving
content, other news sites, own- Digg sharing (e.g. digg. to premium
branded sites (like com); own branded services model)
communities without sites: users created
the discussion) social network (e.g.
Ning)

8


The categories and players in Table 3 are vying for The key question is what business – and revenue
position with other Web 2.010 players, including internet model(s) have the greatest potential to build sustain-
search giants Google, MSN and Yahoo; e-commerce able competitive advantage (Porter, 1980) in an
platforms like Amazon and device makers like Apple, increasingly crowded space?
RIM, Microsoft, Nokia and Samsung, increasingly
present online. These players have also integrated Before we examine that question in more detail, let us
social media into their ‘smart’ devices. The space consider some early industry examples, including some
is hotly contested. The battle is about user reach, that have failed, to get some insight into the sources of
engagement, influence and - increasingly - monetiza- success (survival) versus failure in the industry, hence
tion. what today’s players can learn about the key require-
ments for a successful business strategy and model
“Categories are blurring and the space is getting going forward.
fuzzier” (Vodafone interview). Recent years’ mergers
4.8 Lessons From The Past
between AOL/Bebo (now de-merged); Newscorp/
MySpace.com and Google/YouTube illustrate the point. One of the earliest social networking sites was SixDe-
However, “social rules still apply to each category with grees.com, launched in 1997, starting the trend of
implications for business models” (Facebook interview). users creating personal profiles and making lists of
friends. Six.Degrees.com grew to over one million
members but sold its patent to Youthstream Media
4.7 Social Media Business – and
Networks which later sold it as it was not being used12.
Revenue Models
Social media business models are different to tradi- LiveJournal launched in 1999 offering users to add
tional models and ever changing. As Table 2 showed, friends to their profiles, and grew to 5.5m users but
advertising is the main revenue model. However, there struggled to monetize its open source, subscription
are many sub-models (“everyone is playing with adver- based platform so was sold to Blog company ‘Six Apart’
tising but none have distinct business models as yet in 2005 but never took off13.
– probably as they have not fleshed out user require-
ments”, Boardreader interview). Friendster launched in 2002 but failed to scale and
lost traffic to newly launched Myspace.com, which did
Table 4 summarises the primary traditional and not require membership and offered a richer media
emerging models, according to the interviews: proposition14. Friendster recovered and grew to 90m
users, 90% of whom were in Asia, so was sold to
Table 4 highlights the trend towards more measurable Malaysian MOL Global in 200915. MOL has since struck
and creative formats in response to monetization pres- a deal with Yahoo to integrate product features and
sures. It also shows that leading players like Facebook cross-promote across both platforms16.
and Linked-in are starting to move away from 100%
reliance on advertising, e.g. Facebook has added user
payments for ‘virtual gifts’ and ‘social gaming’ applica-
tions to their revenue models, while Linked-in earns
additional revenues from user payment for premium
services.

9

Table 4: Social Media Revenue Models11
Definition Example
Display advertising Traditional brand exposure model. Becoming more targeted but less
(e.g. banner dominant with monetization pressures (e.g. Facebook did not renew
advertising) banner ad deal with Microsoft)

Branding within Brands pay application developers for exposure within their
applications applications (e.g. newsfeeds or shopping apps on Facebook/ Twitter).
More measurable and lucrative than banner ads and user experience
is different (user is not inundated with ads).

Sponsored Tweets ‘Sponsored Tweets’ is Twitter’s new revenue model: when a user
searches on a word, a message appears at the top of the list of
tweets returned. The message is “sponsored” (bought) by an
advertiser. The tweets returned by the search are continually updated,
but the sponsored tweet stays on top highlighted in yellow, e.g. a
search for “coffee” produced this promoted tweet by Starbucks:

Virtual currency Users and brands use ‘real money’ to buy virtual currencies to
spend online (on advertising, goods, resp.) e.g. ‘Facebook Credits’
(purchased via credit cards, PayPal or mobile phone). Virtual
currencies are growing fast in gaming and social applications,
providing sizeable opportunities for developers/platforms.

Virtual gifts Virtual gifts (see image) have become a $1 billion industry in the U.S.
and $5 billion worldwide, and are extremely popular in South-East
Asia. Virtual gifts are viewed as the next big social media revenue
model (Facebook interview).

Social gaming Social games are paid-for, multi-player games with contextual rules
(take turns). Social games are becoming one of the most popular
categories of apps on Facebook and viewed as a huge opportunity for
developers/platforms.

Hybrid models Hybrid business models combine different models, e.g. free-to-use
(ad-supported) with payment for premium services, e.g. Linked-in.

10


Friends Reunited - an early incarnation of social What went wrong? And how does a network that
networking as we know it today – was launched in once had over 40m users decline so rapidly? Industry
the UK in 2000 to connect old school friends. Friends rumours suggest that AOL misjudged what it was
Reunited grew to 15m users in 2005, about 50% of buying, believing it was getting a platform with broad
UK adult internet users then, having launched outside appeal like Facebook, rather than a platform for teen-
the UK and expanded users and services to include agers23.
sports teams, clubs and associations, message boards,
Bebo has also been criticised for lack of technology
dating, job searches and a family tree service through
focus/innovation and having too many vice presidents
Genes Reunited. Friends Reunited was bought by
and not enough developers, in contrast to the engi-
ITV for £175m in 2005 but ITV failed to develop it into
neering cultures of MySpace, Twitter and Facebook
the mass-media platform it had intended. So, users
– resulting in its failure to offer anything new to the
migrated to Facebook, MySpace and Twitter and
audience that grew up and migrated to Facebook.
Friends Reunited was sold to Brightsolid, owned by DC
Thomson, in 2009. It has since been repositioned as a When Ning announced staff cuts and the closure of its
genealogy business17. “free” service in April 201024, some questioned whether
a crisis is under way in social media or simply an inevi-
MySpace.com launched in 2003 but did not reach
table process of rationalisation with the latest entrants
critical mass until 2004 when it changed its rules to
learning and excelling from the mistakes made by the
allow teenagers to join. MySpace was acquired by
pioneers?
News Corporation in 2005 and became the most
popular social network in the US in 2006. Today, Amongst Brand Communities, ‘The Hub’ - Walmart’s
MySpace.com has been overtaken internationally by attempt at social networking for teens is an infamous
Facebook and Twitter, despite a late attempt to revive example of failure. The need for teens to get permis-
its fortunes through increasing focus on music, arts sion from their parents to register on the site resulted
and publishing (giving it more of a portal flavour than in many fake profiles, and was widely blamed for its
a social network), viewed by many as niche18. Most failure, reinforced by unstructured adverts, which clut-
recently, MySpace.com has added links to Facebook tered user profiles.
and Twitter to its functionality to improve its appeal19.
However, its future is uncertain and MySpace.com is Table 5 compares some of the early social media
rumoured to be up for sale, despite NewsCorp’s claims failures and their potential sources:
to the contrary20.
So where did the examples in the table go wrong? Do
Bebo (‘blog early, blog often’) launched in 2005 and they have anything in common?
within 12 months, had 21.4m users worldwide. Bebo
was acquired by AOL for $850m in 2008 but has strug- Certainly, all the players lacked a clear, compelling
gled to compete effectively against rivals such as value proposition and failed to build or retain critical
Facebook – in the UK user numbers have fallen from mass. In the cases of Friends Reunited, MySpace.
5.8m in 2008 to 1.8m in 201021. After only two years, com and Bebo, users migrated to competing platforms,
AOL has sold Bebo to Criterion Capital Partners, a reinforced by lack of (product) innovation to keep users
small private investment firm for an undisclosed sum. engaged and non-monetizable business models.
Criterion’s plans for Bebo are unclear. However, they
are believed to see business potential in Bebo as a
media platform, based on its user base, worldwide
presence, revenue history and infrastructure22.

11

Table 5: Comparison of Social Media Sites That Have Failed
Social Media Potential Source of Failure
Value Critical mass/ Business Model Technology Innovation
Proposition scale
Live Journal Unclear value Failed to build Struggled to monetize
proposition critical mass platform

Friends Ceased to offer Users migrated Failed to monetise Failed to Lack of product
Reunited compelling value to Facebook, fee-paying audience – turn closed innovation, low-
proposition MySpace and when perceived value proprietary fi site design/
Twitter to users ran out, people platform into functionality and
stopped paying and left intended mass- design of system
media platform

MySpace Lack of Attrition to Unattractive ads (Open Model) Lack of innovation
compelling value Facebook. Lack of –
proposition Global expansion
despite late (69.2% of users - MySpace has
attempts to are from the US been accused
introduce music/ (compared to of imitating
arts and links Facebook’s 30%) Facebook, rather
to other social than investing
networks in new product
innovation
Bebo AOL Users migrated Failed to monetise (Open Media Lack of product
misunderstood to Facebook, young audience (13-24 Platform) innovation and
Bebo audience which has broader year olds) through ad- failure to respond
and failed to offer audience appeal based model to user needs
compelling value than just teenagers
proposition
Wal Mart’s Lacked clear Failed to attract Ad-funded model; N/A only existed N/A only existed
“The Hub” value proposition target audience myriad of in-your face for a few months for a few months
and had due to lack of adverts cluttered user
unattractive rules value proposition profiles
and unattractive
rules

12


Lessons for today’s players are: In the meantime, if Bebo and MySpace go down as the
latest examples of an over-hyped social media boom,
 know your audience; rumours abound that Facebook is eyeing an Initial
Public Offering (IPO), which could value the company
 have a clear purpose;
at as much as £65 billion. If the IPO does materialise,
 offer a crisp, differentiated value proposition the flotation would mark one of the biggest technology
to match the needs of your target audience, flotations in recent years. By comparison, Google was
supported by: valued at £15bn when it listed in 200430.

 an appropriate set of rules for that audience, which Then, the question becomes what (innovation) is
at once protect and provide freedom for them, keeping Facebook – and perhaps Twitter - afloat that
backed by: others before them have failed to grasp?

 a suitable business model that can be monetised; I return to these questions below but first, let me
examine what the literature on e-business models
 continuous technology and product innovation; can add to the lessons learnt from the early industry
examples:
 an easy-to-use, executable and scalable tech-
nology platform. 4.9 Key Themes from the Literature On
e-Business Models and Implications
With the benefit of some of that hindsight, Facebook
for Social Media
was founded in 2004 (but launched publicly in 2006)
and has grown to become the world’s largest social Theme 1: There is no agreed definition of business
network (Facebook interview). A number of companies models and the impact of the internet
including Friendster, Yahoo and Viacom have tried to
acquire Facebook, which remains private, although The dot.com bubble and subsequent burst (~2001)
Microsoft took a 1.6% stake ($240m) in 2007, valuing reignited the debate on business models, why they
the site at $15bn25. matter and the impact of the Internet. However, there
is still no generally accepted definition of a business
Twitter launched in July 2006. Today, it is a 100m user model (Shafer et al. (2005); Osterwalder et al. (2001);
business valued at $1bn26. Facebook attempted to Osterwalder, Pigneur, Tucci (2005); Petrovic et al.
acquire Twitter in November 2009 for $500m27. (2001).
The key issue for Facebook and Twitter is whether they A review of the business model literature (Shafer et
can sustain their growth AND capture value from it, or al. (2005); Magretta (2002); Linder & Canttrell (2000))
whether they will suffer the same fate as the players in suggests that business models describe how firms
Table 5 (for the same reasons)? create AND capture value. Both are important - players
like Yahoo in the early days provide painful reminders
Or perhaps the bigger question is whether social
of web businesses creating value without capturing it
networking as we know it today will eventually be
(Osterwalder et al. (2005)).
killed off by the next ‘disruptive innovation’28 or ‘wave
of creative destruction’29 as social media have (partly) Afuah and Tuccci (2001) note that “a firm’s business
done to traditional (online) communications, and as has model is critical to its ability to gain and maintain
happened to many other industries before, which have a competitive advantage”, (p73). Finally, Magretta
failed to spot the next wave of disruptive innovation observes that business models should answer the
(e.g. Kodak’s failure to spot the move to digital photog- questions:
raphy).

13

1. Who is the customer and what does the customer These customers, in turn, share roughly the same
value? values – connecting and sharing with friends/family/
business professionals/other customers, which players
2. How can the business deliver value to customers at respond to by offering connectivity. Players in turn
an appropriate cost, i.e. so that it offers customers seek to create and capture value mainly through ad
value and profits in the process of doing so. revenues, as we have seen. By implication, there is
Table 6 applies the Customer-Value-Profit framework31 little to differentiate players or value propositions.
to the main social media categories from Table 3: In contrast, Magretta (2002) argues that to be
What does Table 6 tell us about value creation in social successful, businesses must aim to have a better way
media? Let us turn to Theme 2: of creating, delivering and capturing value than the
competition, either because it offers more value to a
Theme 2: Too many players offering the same products specific customer segment or replaces an old way of
to the same users with identical business models doing something with a new type of business model.
Shafer et al. (2005) add that “successful firms create
Table 6 suggests that all the categories target roughly substantial value by doing things in ways that differen-
the same customers32 - Linked-in targets users in a tiate them from the competition”, (p.4).
professional capacity, while others ‘skew younger
demographics’, e.g. Bebo, MySpace (Facebook inter-
view).

Table 6: Customer-Value-Profit Paradigm Applied to Current Social Media Models
Who is the Customer? What does the customer value? How does the business make
money (profit)?
Social Networks/ End users – all demographics Connections and sharing with Mainly ad revenues + sale of
Communities – e.g. friends/family product/ services
Facebook
Business/ Professional Business/ Professional Users Connections with other business Hybrid model: Ad revenues
Networks – e.g. Linked-in professionals, job opportunities, + Subscriptions revenue –
access to expertise etc premium services
Content Aggregators – e.g. End users – skews young Content Sharing with friends Ad revenues
Bebo/ Myspace demographics (bebo: 13-16;
myspace: 16-24)
Microblogs – e.g. Twitters End Users Connecting and sharing with Free to use + Ad Revenues
friends/ family (Sponsored Tweets on some
search pages)
Brand Communities/ Customers/ influencers of the Connecting with customers/ Revenue from sale of product
Internal Communities business; or if internal application, Influencers (e.g. Dell), cost savings from
employees and/or businesses web-enabled rather than contact
centre-enabled customer service

14


Magretta (2002) also notes that too many fledgling 1) The Broadcast Model (“We tell you”): the tradi-
internet retailers offering the same kinds of products tional one-to-many, “push” model of communications,
with identical business models was a major cause of associated with traditional media (newspapers, maga-
the dot.com crash. zines and broadcast TV) offers users ‘passive’ content
By implication, the key question for today’s social consumption. The key threats to this model come from
media players is whether with roughly the same competition for ad revenues from new media, audience
customer-value-profit paradigms, anyone can offer ‘a fragmentation and ‘free’ content on the Internet.
better way of creating, delivering and capturing value’ 2) The Interactive Model (“Tell me what you think
or ‘more value to a specific customer segment‘ than the of what we tell you”) combines 1) with many-to-
competition’? many communications, offering users an opportunity
Theme 3: There are different approaches to creating a to comment on and provide ratings for the broadcast
community dynamic content, e.g.CNN.com, in return for better targeted
advertising opportunities. The key threat to this model
MIG (a leading consultancy that has done interesting is competition from even more interactive formats (see
work with clients around customer engagement below).
models) links with Boudreau & Lakhani (2009) in
showing different ways of engaging with users.

MIG distinguishes between three basic models (see
Figure 1)33:

Figure 1: MIG Business Models
Broadcast Interactive Social Media
“We tell you” “Tell us what you think of what we tell you” “We tell each other”
Examples: The New York Times, CNN Examples: nytimes.com, cnn.com Examples: Wikipeadia, Stashdot, ohmynews

Publisher/Broadcaster
Publisher/Broadcaster

NEWSPAPERS Big media buys for $ NEWSPAPERS FORUMS $ COLLABRATIVE
MAGAZINES display advertising MAGAZINES COMMENTS PUBLICATIONS
in heavily trafficked $ $
$ TV areas WEB VIDEO RATINGS Small, targeted
media buys for
$
$ Similar targeted $ contextual
adversiting Revenue Share
media buys for $ $
$ contextual
$
advertising in less
$
Pay for use

trafficked parts of
Big media buys for $
display advertising the site Readers - commentators
$ Co-creators

Passive Readers Audience Passive Readers Audience Passive Readers Audience

15

3) The Social Media Model (“Tell each other”): 1) Integrator platforms which incorporate outside
changes communications to ‘many-to-many’, offering innovations and sell the final products to customers,
users tools for active participation, content creation/ which then grants them power over third party develop-
sharing and a community of trusted co-creators, ments, revenue streams and the customer interface
in return for high participation and loyalty; reduced (e.g. Apple);
content creation costs through increased scale, large
audience sizes and user recommendations. The key 2) Product platforms which give platform owners less
threat to this model is uncertainty of (advertising) control as external innovators innovate “on top” of the
revenues and user privacy issues (see below). platform and sell their products directly to customers.
The platform owner might contract with the outside
By implication, social media players must select a innovators and have some control over them through
model of customer interaction to match their business – the core technology, but the outside innovators transact
and customer strategy and objectives. MIG link with: with end-users, set prices, own the Intellectual Property
(IP) over technical developments etc (e.g. Intel Corp’s
b) Boudreau and Lakhani (2009) who stress the need ‘Intel Inside’ microprocessor strategy); or
for ‘Open Innovation’ to stimulate and commercialize
new product ideas. The challenge is how to open up 3) Two-sided platforms which have external inno-
product development processes to outsiders, e.g. vators and customers transacting directly with one
through external innovators organising themselves as: another, e.g. Facebook. The third party apps (widgets)
might reside on a separate technical infrastructure,
 collaborative communities motivated by knowledge even though the interactions are enabled by e.g.
sharing/joint development (for free, as Apple devel- the Facebook platform. Facebook also facilitates
opers did prior to Apple opening up its Application the transactions and interactions between the two
Programming Interfaces (APIs) or linux open- parties. However, the third party innovators are free
source software originally)?, or as to determine the revenue model that best supports
 competitive markets where profit-seeking innova- their investments, whether ad-supported or fee based.
tors develop different products in competition with Nonetheless, the developers must abide by contrac-
others for sale to customers on the open market. tual and technical rules imposed by the platform (e.g.
Facebook), such as determining the level of access to
Which model is ‘right’ depends on the type of innova- user information.
tion in question (new or established technology or
customer needs); the motivations of external innova- Applying Boudreau & Lakhani (2009) to the social
tors – financial or collaborative; and the nature of the media space, their models clearly resonate. Whereas
platform business model. most of the early social networks like Friendster and
Friends Reunited were based on ‘closed innovation’,
The business model is particularly important. Boudreau ‘walled garden’ platforms, all leading brands and
and Lakhani (2009) argue that when a company services today from Googlemail to Yahoo, Twitter,
opens up its innovation to third parties, it essentially Bebo, MySpace, Apple and Facebook (to an extent)
transforms its product into a platform, which needs to have embraced (semi-)open innovation models,
generate revenues, requiring players to consider what exposing their APIs to software developers, enabling
business model is best suited to meet that objective, these to write ‘widgets’ directly to platform users.
either:

16


Osterwalder, Pigneur and Tucci (2005) observe that
Apple’s business model (starting with the iPod, iTunes
technology innovation, bandwidth and communication
etc) is one of the most interesting and successful
have made it easier for companies to work in value
examples of open innovation against Apple’s otherwise
webs, by driving down coordination and transaction
closed design philosophy. The iPhone, for instance,
costs, unlike in traditional industrial economics, where
started life as a closed shop with only a few appli-
firms worked alone and value creation meant turning
cations designed by Apple itself and a few trusted
inputs into outputs, which were then sold to customers.
partners. In what proved to be a turning point, outside
developers had spotted the opportunity around the Because value net players depend on each other for
iPhone and organized themselves into a web commu- value creation, how they choose to play within their
nity to share tips on how to hack into the iPhone to value net is an important part of their business model.
create ‘missing’ applications. Before long, the commu-
nity had written over 100 applications. Rather than The value co-creation framework draws on Von
attempt to kill them off, Apple decided to embrace Neuberg and Morgenstern’s work on Game Theory
them and created a formal, third party developer (Brandenburger and Nalebuff (1995)), which helps
programme, giving developers the required tools, inter- us think about ways in which players can shape the
faces, licensing terms and revenue sharing models and game they play, to ensure that it is the right game being
adapting the technology to act as an exclusive distri- played in the right way.
bution channel, thereby transforming what started out
as a community into a centralized market place under In social media, YouTube is an interesting example of
Apple’s (tight) control. Thousands of external software value co-creation with users. Like many internet start-
developers and applications later, the iPhone (and ups, YouTube did not have a viable business model at
now also the iPad) are transforming the lives of many, launch in 2005. Advertising was introduced in March
and creating a flourishing business ecosystem in the 2006. In October 2006, Google acquired YouTube.
process. Today, advertising is YouTube’s main revenue
source, so attracting ‘eyeballs’ is YouTube’s primary
An interviewee for this paper suggested that Facebook objective. YouTube users know that their role is not
too was shocked at the number of applications it got purely as content viewers but very much as content
when it opened up, compared to being a single source creators, which lies at the heart of YouTube’s popu-
player. larity and business model – and Google’s willingness
to spend $1.6bn to acquire it34. YouTube is also very
What the Apple and Facebook examples show is not careful to ensure that users understand its interac-
only that open innovation became the cornerstone of tive strategy, giving them a sense of creating - rather
their success but also that innovation strategies evolve. than just acquiring - value. As such, YouTube became
a pioneer and game changer on the Internet, in many
Theme 4: The value-net model
ways re-writing the rules of competition by essen-
Hamel (2000); Brandenburger and Nalebuff (1995); tially re-configuring the roles and relationships of the
Shafer et al. (2005) and others note that neither value different actors in its value net. See Figure 2.
creation nor value capture occurs in a vacuum but in a
value-net of customers, suppliers and complementors
(businesses whose products complement the products
of other companies in the value net, by adding value
to mutual customers), who work together to co-create
value.

17

Figure 2: YouTube Model of Co-Creation Facebook and its complementors depend on each
other to build value. Facebook also depends on users
Users (content viewer) in a dual role as ‘prosumers’ - content producers AND
consumers, along with other content creators.

Substitutors The Facebook interview confirmed that Facebook
(Other content/ thinks in very similar terms regarding its business
video sharing sites Complementors
(e.g. Flickr), social YouTube (Advertisers) model. Figure 4 illustrates Facebook’s two-sided
networks business model.
generally)

Theme 5: Innovators often fail to profit from their inno-
vations
Suppliers (users as content
creators, other content creators)
Teece (1986) draws attention to empirical evidence
(Rothaermel and Hill (2005)) which shows that core
IKEA is an interesting non-social media example of innovators often fail to profit from their innovations,
value co-creation with users, who co-create value with while owners of complementary assets to support their
IKEA through self-assembly of IKEA furniture. commercialization benefit.

Figure 3 shows how Facebook co-creates value with Facebook gives credence to Teece (1986) with its
complementors and users through its two-sided tech- decision to take a 30% cut of developers’ Facebook
nology platform. Credits revenues (like Apple’s 30% levy to developers
in the App Storee)36.

Figure 3: Facebook’s Value Net The credits programme is still in beta but includes
Users two of Facebook’s most important developers, social
gaming developers Playfish and Zynga — two of the
biggest players in the estimated $5 billion global virtual-
goods market.
Substitutors
Complementors
(other social
(Developers, Facebook’s decision is unlikely to find favour with its
networks, Facebook advertisers,
internet developer community, which brings out a key point
payment
advertisers) from Game Theory, namely that players should never
processors)
assume that the other players in their ‘game’ will
continue to play the game in the same way (see Theme
Suppliers 6).

Facebook’s announcement did not mention revenue
collected on apps outside the credits system — like
P&G’s Pampers’ and 1-800-Flowers’ commerce apps
— though the virtual goods economy is much more
developed. The latter illustrates Facebook’s interest in
getting a cut of revenue collected in-house.

18


Figure 4: Facebook’s Business model: Two Different Businesses35

1) Homepage 2) Auction-
Online (AO)
Model
Picture Ad Unit Future: HD Video
– become a fan

Feedback: like this/
dislike this, why/why not

ASUs (Ad space units)
Comments,
blog etc
Objective
Objective

 Objective: transactional model (self-service platform)
 Objective: Brand advertising revenue model
 ~ 15,000 advertisers auction for transaction-focused ads
 Advertisers (Coke, Nike, Adidas) create brand engagement
 Trillions of ads
with 25m daily users (6 x reach of The Sun) in their social
 ROI driven
contexts
 Competes against traditional internet advertising (search,
 Future: Strategic opportunity for Facebook is contextual
display etc)
engagement opportunity for brands on a very scalable platform  Future: will add social context and engagement formats, e.g. ads
served based on friends’ behaviour (Starbucks: bring a mug and
get a free cup of coffee - your friends are doing it…’)

Brand
Awareness
(top of funnel)

Transactional
model

19

To Teece’s point, developing a platform is not 4.10 What Value Has Been Created from
enough, whereas being a place where goods are sold Social Media?
(e-commerce platform) could actually enhance the This question poses some challenges. Firstly, “it takes
primary revenue strategy, (i.e. advertising) of many time to build connections. Secondly, how do you
social media players, as adverts on the site will be measure the value of connections” (BSkyB interview),
closer to a potential purchase - moving it from being e.g. friends on Facebook/followers on Twitter? Thirdly,
not just a marketing tool but also a sales tool. That way, what is value?
it may also help prove how closely social media can be
tied to sales. Did some say Amazon.com? The essence Let us consider the social media value-net (see Figure 5):
is that value net players must consider the value they
bring to other players in their ecosystem as well as the Figure 5: Social Media Value Net
value others can bring to them.
3) Users
Theme 6: Business model innovation is a must

Theme 5 showed that an organization’s business
model is never complete. Consequently, the process of 2)
4) Substitutors 1) Platform owners Complementors
making strategic choices and testing business models (other social
(a) social networks (software
should be iterative. networks, Developers,
internet (b) brand communities Advertisers/
Zott and Amit (2004), show empirical evidence that advertisers) brands)
business model innovation matters to the perform-
ance of entrepreneurial firms. Their study shows that
firms are not only able to innovate by recombining 5) Suppliers
the resources they control but also by harnessing
those of their partners, suppliers and customers, 1a) Platform Owners – Social Networks/
who are part of their business model. Fast forward Communities
a few years and there are signs of learning: Table 4
showed the trend towards more creative and measur- Social networks track the following metrics; User
able formats. Facebook Credits is one such example, traffic38; User engagement39; Platform metrics40; Adver-
enabling advertisers to buy adverts and users to buy tiser metrics41 ; Revenues42 and Profits.
goods through this virtual currency system powered by
User traffic:
PayPal37. Marketers can also test e-commerce applica-
tions on their Facebook pages (e.g. P&G sells pampers We know that Facebook and Twitter have 500m and
on Facebook). Facebook is now also selling digital and 100m users worldwide, respectively. Figure 6 shows
real gifts in a gift shop, music from Apple’s “lala” brand, that Facebook attracted 124m users (43% increase
flowers, cakes and tickets. YoY) and Twitter 28m users (36% increase YoY) in May
2010. MySpace, Bebo and Flickr are losing traffic.
These look to be steps in an overall transformation of
Facebook’s business model from a social networking
site to a shopping mall? Is Facebook about to become
a fully-fledged e-commerce platform?

20


Figure 6: Unique Visitors to The Top Social Networks43

Social Network Unique Visitors (m) Monthly change (%) Yearly change (%)
Facebook.com 123,785 1.71 43.27
Twitter.com 28,236 1.89 35.67
My.Space.com 67,626 -4.56 -12.46
bebo.com 2,105 -5.84 -51.94
flickr.com 24,897 -0.11 0.7

On this growth trajectory, Facebook looks set to reach Advertiser metrics:
1 billion users by 2012/13, equivalent to ~50% of the
web population by then (see Introduction). Twitter is According to a recent e-consultancy survey, Facebook
projecting a similar growth path44. is the Web property most commonly used in social
media marketing, with 85% of companies using it as
User engagement: part of their marketing strategy, followed by Twitter
(77%), LinkedIn (58%) and YouTube (49%)49.
A key metric in the health of a social network revolves
around the activity of the user base – visits per unique There is no (aggregate) data on advertiser metrics and
visitor, number of friends etc. Facebook demon- returns are hard to measure (see below). Intuitively,
strates impressive statistics, e.g. 50% of active since half of people in the UK go on Facebook every
Facebook users log on every day, the average user day, it is simple for advertisers to work out potential
has 130 friends; is connected to 60 pages/groups/ reach. With rapid traffic growth and real-time feedback
events, creates 70 pieces of content each month etc45. through Facebook’s ’like’ button (enabling users to rate
Sysomos’ recent ‘Inside Twitter’ survey, based on the content and make connections to advertiser pages
more than 11 million users, shows that only 10% of - see Figure 4), Facebook’s ad inventory and value to
Twitter users account for 86% of all activity46. However, big brands is increasing rapidly.
the pattern is changing; according to blog.twitter.
The e-consultancy survey shows that Twitter is rapidly
com, users were tweeting 5,000 times a day in 2007,
gaining ground. However, with ‘sponsored tweets’ a
whereas today, Twitter is seeing 50 million tweets per
new model, there is no data to assess its success.
day – i.e. an average of 600 tweets per second. The
Going forward, Twitter will measure ‘resonance’, a
other main sites are losing traffic so are not considered.
quality score tracking how effective sponsored tweets
Platform metrics: are, and how users engage with them to increase its
appeal to advertisers and users. Tweets that do not
Facebook has over one million developers and resonate will disappear from the platform and brands
550,000 active applications on the site. Two-thirds will not pay for them.
of ComScore’s U.S. Top 100 websites and half of
its Global Top 100 websites have integrated with
Facebook47. According to Twitdom48, there are some
17,000 applications listed on Twitter and growing, i.e.
both sites show significant growth in platform metrics.

21

Revenues: 1b) Platform Owners – Brand Communities

Facebook is a private company so does not disclose Social media open new ways for brands to connect
financials. The Wall Street Journal reports that with customers/prospects. Brands like Starbucks, Sony,
Facebook revenues for 2010 could be as much as Coca-Cola, PepsiCo, Dell, P&G and Kodak all have
$1.2-$2 billion50 against reported revenues of $900m brand communities on their websites. Others have
in 200951, i.e. a doubling YoY. The Facebook interview Facebook or Twitter pages. Some have both. Objec-
suggested that the company is planning for substantial tives are many and varied57, e.g.:
revenue growth over the next five years with payment
revenues, potentially matching or exceeding ad - Dell sells products on its community site and is
revenues52. reputed to sell $3m worth of hardware on Twitter and
other social media (Boardreader interview);
Twitter is also a private company, so does not disclose - Dell and Microsoft have ‘Social CRM’ communities,
financials. Twitter grew its user base substantially in where users collaborate to solve problems in relation
2009 but is not believed to have generated significant to their products. Dell has delivered a turnaround
revenues. That said, leaked, internal February 2009 in customer service through ‘crowdsourcing’, while
forecasts point to projected revenues of $400,000 for Microsoft awards credits to users for ‘social CRM’
third quarter 2009 and $4m in fourth quarter, i.e. full services (Boardreader interview);
year projections of $4.4m for 2009. The same fore-
casts predict that Twitter expects to generate full 2010 - Vodafone monitors tweets from customers and
revenues of $140m and 2013 revenues of $1.54bn53. delivers instant responses to their queries in return,
Twitter says it has already signed up well-known have web-enabled customer service teams etc.
brands such as Starbucks, Sony, Virgin America airline, (Vodafone interview);
US retailer Best Buy etc to its ‘Promoted Tweets’54. - Kodak offers customers to connect with friends and
Time will tell if the ad model finds resonance with users family, through an online photosharing service;
and developers and scales to generate revenues of - Coca-cola collects feedback on products through
$1.54bn by the end of this year? online user ratings amongst many other social activi-
Profitability: ties;
- Nestle, Mars, Boots, PepsiCo and others use social
Facebook does not disclose profits. However, in 2009, media monitoring tools to ‘listen in on’ user conversa-
it commented that it was generating enough income tions on the web to assess brand impact;
to cover its operating expenses, as well as its capital
spending needs, thereby resulting in making a net profit - Starbucks engages customers in a range of social
of several million dollars55. Twitter’s (leaked) forecasts activities from product co-creation to charitable
suggest it expects to generate net earnings of $1.1bn events (Starbucks discussion); while
by 201356. - At PepsiCo, “social media have changed the way the
company thinks” (Head of Social Media, PepsiCo);
In summary, Facebook and Twitter are growing traffic,
user engagement and complementor value rapidly. - Finally, pharmaceutical companies like Novartis
Facebook also appears to be growing revenues fast tweet about lab activities to learn what the public
and has effectively declared that it is profitable. We care about, amongst a growing trend of companies
only have leaked projections for Twitter. If these are using social media in support of Corporate Social
to be believed, and current growth continues, we Responsibility (CSR) objectives, coining the concept
may conclude that both Facebook and Twitter are of the ‘social’ company’ (SMI interview).
creating AND capturing value, whereas the other social
networks are doing neither.

22


Viral brand marketing activities in users’ social context The last quote illustrates that attempting to measure
on Facebook and Twitter have already been discussed. the value of social media by traditional, short-term
business metrics is problematic, including to social
Some of these activities have measurable outputs media executives who need to justify the ROI on social
(revenues from Dell product sales; improved customer media budgets in the same way as traditional budgets.
service at Dell and Microsoft etc.).
Bernhard Warner adds: ”Social media make a substan-
Beyond these, the question is what value brands derive tial contribution to fostering a whole different value-net.
from their social media activities, what is value and how The biggest missteps by companies is when they seek
you measure it? to manipulate social conversation to achieve short-term
“‘Social media is increasingly being held accountable goals like higher click-throughs or page views, when
forcing links with advertising or how you sell something in fact they ought to focus on creating longer term
that can be measured by short-term financial metrics. value. The most enlightened companies appreciate that
But Social media suffer from a’ false positives problem’: social media are not about a quick fix but that fostering
just because you are in a social circle many algorithms communications and conversations between people
away does not mean you can influence your ‘friends’ has inherent value”.
friends’ decisions plus people only have max 140 The message resonates with some players: Facebook
friends, not thousands” (Vodafone interview). for one asserts that user, developer and advertiser
There is ample evidence of brands struggling to metrics have higher priority than revenues and profits –
measure returns from social media spending (ref eCon- for now59.
sultancy survey). A key challenge is that social media “Companies need to consider what they are looking for
do not just impact one business area but fuse entire from social web, rather than just accessing someone to
businesses with important implications for how compa- throw advertising at them” (Boardreader interview).
nies deal with their customers, e.g. people may dislike
being advertised to. However, according to Starbucks’ ” Social media, if done well, can impact a number of
Digital Director, 93% of consumers seek opinions areas and business metrics over time” (SMI interview).
of others before they buy58. The question is how to
measure social media influence? Key business areas which social media is likely to
impact include customer insight, R&D, product develop-
According to Bernhard Warner, SMI, the problem lies in ment and customer service hence indirectly revenues,
attempting to measure the Return on Investment (ROI) costs and profits.
from social media:
The above discussion shows that value has multiple
“Social media have become almost perverted by meanings in the context of how social media impact
marketers with their focus on ROI, which doesn’t truly businesses. The challenge for companies is to decide
exploit its potential. Marketers can slice up costs/ what they want social media to deliver by when and
revenues per lead; no of followers to their accounts and how to measure it.
add them up. But is that a true measure of value or a
remarkable injustice to the potential of social media and
the people who spend their time? Consumers don’t
think in terms of three-month campaigns. The idea is
to build a group of users you can engage with, which
takes longer than three months. Companies should not
be too focused on the number of followers they have
but on listening to consumer dialogue… which speaks
to the value of having a social media presence”.

23

Jeanette Carlsson Oxford Paperon Social Media Final12 July2010

Jeanette Carlsson Oxford Paperon Social Media Final12 July2010

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